Daio Paper's (TSE:3880) Dividend Will Be ¥7.00

Daio Paper Corporation (TSE:3880) will pay a dividend of ¥7.00 on the 3rd of December. The dividend yield is 1.7% based on this payment, which is a little bit low compared to the other companies in the industry.

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Daio Paper's Distributions May Be Difficult To Sustain

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Daio Paper is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. This gives us some comfort about the level of the dividend payments.

Looking forward, earnings per share is forecast to expand by 75.4% over the next year. While it is good to see income moving in the right direction, it still looks like the company won't achieve profitability. The positive free cash flows give us some comfort, however, that the dividend could continue to be sustained.

View our latest analysis for Daio Paper

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of ¥8.50 in 2015 to the most recent total annual payment of ¥14.00. This works out to be a compound annual growth rate (CAGR) of approximately 5.1% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings per share has been sinking by 51% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

The Dividend Could Prove To Be Unreliable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Daio Paper that investors need to be conscious of moving forward. Is Daio Paper not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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